This is a question that has been asked of me a lot lately. My initial response is I really don’t know. It certainly wasn’t my goal or even my intention; it just happened. That said, you can’t just wander a half million dollars into debt!
When we started planning for The Lazy Susan we had $46,000 cash from a workers compensation settlement, a mortgage for $90,000, student loans of $70,000, and about $10,000 in auto loans for a total debt of about $170,000. We planned on quickly becoming debt free after the restaurant opened. To help you understand our marriage, I have always been the spender and Amy the saver. She was advocating back then that we should cut our lifestyle and take care of this debt. My answer to her was always that we would just make more money and keep our lifestyle where it was.
In the spring of 2005 I finally had an approval on an SBA loan for The Lazy Susan in the amount of $122,700. This loan along with an infill allowance of $88,800 and my $46,000 of cash was going to be all I needed to get everything going. It was just before closing on the loan that all of the problems started to roll in, one at a time.
The first issue that hit us was an impact fee by the City of Nixa. In the planning I had been told that I would be paying an impact fee for retail centers which would have been approximately $1,000. When my architect went and submitted the plans, he was told we would have to pay the restaurant rate impact fee even though we were part of the retail center. We couldn’t get our permits to begin the infill until the fee was paid, so instead of fighting it harder, after some discussion I paid the $6,895 impact fee; $5,895 of it not in my budget anywhere.
The next set back followed quickly, still before closing on the SBA loan. We had a five ton HVAC unit sitting on top of our space. I had never asked and our landlord had never mentioned it, so I had assumed it was included when doing our cost analysis. When we went to do our first draw on the infill allowance, my landlord let me know that they had taken $5,500 out of our account to cover the cost of the HVAC unit, which was a deal on the five ton unit, just not what I had planned for. Upon reviewing our lease, it did clearly state I would start with a grey box and supply my own HVAC and plumbing. I could have fought them on the fact that they purchased the unit without my permission, but it would have resulted in them removing the unit and me paying a couple thousand more to have my own unit put on.
Next came a series of errors, all brought on by the time crunch I forced myself into by not having set aside enough operating capital and starting with too much debt. My budget had accounted for the purchase of used equipment and left about a $6,000 cushion. When I started actually looking at the used equipment, there were many headaches that were developing in reference to wiring and basic compatibility issues. Because the time crunch was hitting me hard in my mind; I negotiated a payment plan with 1/3 down, 1/3 due on delivery and 1/3 due 30 days after delivery and went with almost all new equipment. First two payments got made, but I am currently working on that $18,500 one that I couldn’t make. One of the few used purchases I made was a great walk in cooler/freezer combination which I had budgeted the cost of; what I didn’t budget was the $2,750 it would take to make it operational.
Next was the computer and security system that I really needed. Because I wanted to watch everything while I was away, I also wanted this really awesome camera system. It was great. To get both of these, I negotiated a payment plan of 25% down, followed by three payments of 25% each at 30 days, 60 days and 90 days. I made the down payment, and never made the rest. This left $22,700 that I currently am working on.
The biggest debt other than the SBA loan is with my contractor. This came as a combination of our inexperience together and some ridiculous little known building codes that were not addressed by our architect. A lot of different things happened here, and ultimately much was my fault, some was his, and the time crunch we created contributed heavily in this area as well. Bottom line, we ended up $43,000 over budget and I owed him a little over $57,000.
The rest of the debt was basically a bi-product of our operation. Creating a new system was something that takes time and effort in and of itself. I couldn’t finalize the way everything was going to work until the construction was complete and we could literally experiment with some things. Simultaneously, I was getting so tight on money that I wasn’t going to be able to make my first big payroll unless I hurried and got the doors open and had the cash coming in. Because of this, I made a bad decision to rush our opening day, and we were not ready.
That first weekend, our labor cost was close to 45% and our food costs were over 50%. It doesn’t take a genius to figure out that won’t work. We began developing our system, and started getting these costs under control; but we never came within 10% of our projected labor costs, and never came within 15% of our projected food costs. On top of that, most of our first week customers would not return because of how bad their experience had to be.
Another major issue was that I had too many people on salary too early and for too much. In order to pull everything together as fast as we did, I had to have these salaries. They would really start to hurt once we were open and our sales dropped off from the opening weekend.
In order to pay all of these operating expenses, including rent and advertising, I had every vendor?I possibly could on terms; most on 30 day terms. After about forty days of being open, most of them had put me on COD when I couldn’t possibly pay the approximately $90,000 that was coming due all at once.
In the following months it became more and more difficult to cover operating expenses. I resorted to credit cards to cover the operating expenses that were still not being met by the sales. The end game was becoming inevitable, but I was not ready to give up and started looking for potential partners?or the next loan to finance the now large and still growing debt.
Finally in November I reached the point where I had no more credit available and was still operating at a loss as we couldn’t get our sales to bounce back. November 6th was the last day that I could come up with enough money to pay my employees. Had I not been called to Active Duty with the Army Reserve on October 30th, I probably could have lasted longer. I would have been able to lay off all my managers and run everything myself. That said, it would have only delayed the inevitable.
All told, I was left with 31 vendors that I owed money, seven credit cards that were maxed out, and a strange sense of relief that it was all over. When you add in all the other stuff that I already talked about, you find 53 creditors and $556,848 in debt.
Joel, I’ve been reading your blog for a few weeks, and I’m just flabbergasted. I love your focus, your willingness to share your situation, and your drive to win. I know you can do it!
Is there a place where you’re graphing or otherwise tracking the big picture of debt that you’re getting paid?
Comment by MG65 — August 29, 2006 @ 6:51 am
Thanks!
If you look on the left side bar under menu, you can click on the “Track our Progress” link and it will take you there. I haven’t done any graphics with it yet, but probably should in the near future!
Glad to have you following along!
Comment by Joel — August 29, 2006 @ 8:40 am
Wow. What an amazing story of recovery. And the self control it must have taken to get started. Speaking of which, I don’t think I caught the events that put the book you talk about into your hands in the first place. My brother may be getting a copy annonymously in the mail someday soon, as he has gone into “payment” mode for everything.
I am just glad my wife came along when she did, and made a saver and cash buyer out of me. Or I would be in the same boat as you are now. Thanks for sharing so much, I can’t wait to read this site on the “big day” when it happens!
Comment by triple-e — August 29, 2006 @ 8:51 am
If you read “My Story” with the link on the left hand side bar, the last three paragraphs touch on how the book came into play. The short answer is Amy made me read it. I think I will write a post tonight about how she came across the book. It is an interesting story in and of itself.
Comment by Joel — August 29, 2006 @ 9:09 am
Ah - missed that link! Amazing… just amazing!
Comment by MG65 — August 29, 2006 @ 10:07 am
How I came across the book? I didn’t realize that was an interesting story. Myra and a few other friends recommended it. So I bought it. Or maybe I’m forgetting something. Looking forward to your post.
I really miss you!
Comment by Amy — August 29, 2006 @ 6:41 pm
[…] I recently found this incredible story of how a regular guy got $556,000 in debt. I was intrigued that this was so easy for him to do. […]
Pingback by InvestorBlogger » Blog Archive » JoelMaxwell: The Fall and Rise of Success? — August 31, 2006 @ 12:08 am
Joel, sorry to hear about the restaraunt. You have an excellent drive and attitude. I have faith that you will rise back up from this temporary setback. I wish you and the family all of the best and you are in my prayers. -Sam H.
Comment by Sam Holliday — September 1, 2006 @ 7:58 pm
Thanks Sam! It is great to hear from you. What are you doing now days?
This restaurant is the best thing that has happened to me. It has opened my eyes to so many things, and I am so much better for it all. Thanks for stopping by, and I hope you keep following along!
Comment by Joel — September 2, 2006 @ 1:48 am
Joel,
I am a member of TMMO. This is how I found your website.
You and your family are in my prayers.
You have one heck of an elephant to attack!
I’m scratchin’ my head to come up with an additional slogan for your T-shirts and coffee mugs.
Patty
Comment by Patty — September 16, 2006 @ 5:17 pm
Joel, If it makes you feel any better, my husband and I and a few other members of our church ate at The Lazy Susan opening weekend and we all loved it and had a wonderful experience and did come back. We were sad to see it go.
Comment by Jen — November 10, 2006 @ 5:28 pm
Thanks Jen, it does make me feel better. I loved how busy we were that weekend, but I knew we could do so much better than we did!
Comment by Joel — November 10, 2006 @ 8:34 pm
Joel, I found your site through the TMMO site. I am so impressed by your drive and intensity. You are doing an awesome job! I can’t imagine being that far in debt! Congrats and keep up the good work!
And thank you to you and Amy for serving our country both as a police officer and in the Army.
Comment by Amy — December 3, 2006 @ 11:14 pm
Joel,
Your story is remarkable. Not only are you trying to get out of debt on your own, you are moving along towards that goal and avoiding bankruptcy. This is very impressive. Many people would not be able to do what you are doing? Did you ever consider getting professional help from debt companies?
Good Luck the rest of the way
Comment by Scott — January 4, 2007 @ 4:20 pm
Thanks Scott,
I appreciate you taking time to read about my story.
I actually talked to several debt management/counseling companies both before and after our restaurant closed. None of them were really able to help much because of the types of people that I owe money. Most are local business and friends of mine. These companies are used to making payment deals and payoff deals with companies that are all to accustomed to bad credit accounts.
I am currently using CCCS on five credit cards. They were able to get me interest rates I couldn’t negotiate myself; 0% on 2 and less than 6% on the other 3. Their counseling is very polite, but really not helpful. That is basically what I found with most of these companies; polite, but not helpful.
Comment by Joel — January 4, 2007 @ 10:34 pm
Best of luck! Great gesture on your part to share this with everyone.
Comment by mak — June 17, 2007 @ 3:28 am
Joel, Wow! What what a journey! Just wanted to know if you have any advice for me. I rented your old spot in Nixa. We opened the restaurant, Louviere’s in February 07. Like you we have made some of the same mistakes and it is getting harder to make rent payments. Our biggest was being rushed to open, I was 7 months pregnant and we had spent all of our savings on equipment and food. Our second was not getting a loan of any sort, to make the rent for a few months. In March I was in a very bad car wreck. It totaled my new car, I was 3 weeks away from my due date and couldn’t be at the restaurant to train new employees because I couldn’t walk. The service sucked and our customers started to go elsewhere. Now it seems the walls are closing in on us. Just thought you may have some advice, the restaurant is finally breaking even but we are still playing catch up from the first few months. Thanks and good luck!
Comment by Laura — June 18, 2007 @ 3:58 am
Joel,
A higher power must have steered me to your website. I’m going into lease negotiations on site also in Nixa. I’m bound and determined not to make too many costly mistakes. I realize that some are inevitable. What I’m currently facing is the realization that the developer’s infill allowance comes nowhere near covering the HVAC/plumbing/electrical/wall-gyp etc necessary to cover the basics of a food service establishment . I’m curious how you negotiated $88000 on your infill allowance. What was the landlord initially offering?
Mark
Comment by Mark — July 18, 2007 @ 9:34 pm
Mark,
You can take over our lease! I’ll make you a great deal on everything in here! It’s all set up for a restaurant! E-mail me if interested, lauraelizabeth12000@yahoo.com
Comment by Laura — July 18, 2007 @ 10:45 pm
Mark,
Initially they were offering a white box which is the equivalent of $16 per square foot. They can do a white box for about $12 a foot, so you are almost always better off if they will give an allowance instead.
I offered $24 per foot and was surprised they took it. This of course made me upset that I didn’t offer $30 or $32. They also accepted my rent offer of $12 per foot, which I should have offered lower on that. I can tell you that you probably need about $50 per foot to do it real nice.
Comment by Joel — July 18, 2007 @ 11:25 pm
Hi Joel,
Stumbled on your website while looking for an image of a gazelle chasing a cheetah! Your story is very encouraging, and it is rare to meet people who share our intensity level about credit cards and getting out of debt. We started a professional Christmas caroling group, in part to help facilitate our debt repayment, and also because of Dave Ramsey’s advice to “do something that you love!”. We are enjoying God’s blessings on this journey, and we pray his blessings on your family as well. Keep up the great work!
Paula & Johnny
Comment by Paula & Johnny Walters — January 27, 2008 @ 10:14 pm
Thank you so much for your honesty and intensity on this blog. I’m praying for your gazelle focus to get you free of these cheetahs as quickly as possible!!!! I’ll be forwarding this on to some friends who are whining about much MUCH less debt to pay off and how overwhelming it is.
Keep on keepin on Brotha! J
Comment by Julia — July 27, 2008 @ 1:19 pm